Wednesday, 26 November 2008

PBR; worst of both worlds

. Last night saw the embarrassing revelation that right up until the last minute the government was considering ramping-up VAT to 18.5%. Today The Independent is carrying news that the governments pledge not to cut funding for front-line public services is also looking shaky. It reports on a study by the Institute of Fiscal Studies which it says is 'withering' about Alistair Darlings Pre-Budget Report.

It dismisses the new top rate of tax as being able to raise 'virtually nothing' and says that;

"the Treasury is "strictly correct" to say no one earning less than £40,000 will be worse off as a result of the increases in national insurance and other tax changes being brought in in 2011"


"this is only true if the position in April 2008 – ie before increased personal allowances of £600 per year – is ignored."

Public finances will be hit hard too;

"The IFS highlights that public spending is now expected to grow by just 1.1 per cent in real terms between April 2011 and March 2014. Public sector investment – new schools, hospitals and other infrastructure – will be sliced by 16.5 per cent in 2012-13, compared to previous plans. As one example, though the Department of Health's capital budget is set to increase by £300m in 2008-09 and 2009-10, the following year will see a reduction of £1.4bn."

In other words, the PBR gives us the worst of all worlds. The IFS report also highlights a £40 billion hole in government finances which, as I blogged yesterday, is around the figure of government losses to tax loopholes. It's time our campaign for fairer taxation emphasised this point and that as well as pushing tax cuts we push for the closure of the loopholes.

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